The Democrats and the 2010 Budget Fiasco

This dereliction of duty is unprecedented.

Gary Andres

September 30, 2010 6:45 AM

The 2010 federal fiscal year ended unceremoniously this week – a political and substantive fiasco for the Democrats. It included a cascade of miscalculations that could haunt the party in the November elections. But that pales in comparison to the serious harm they’ve inflicted on the American economy.

Never before has a party so bungled fiscal policy in the United States, leaving citizens, businesses, and investors with head-spinning uncertainty.

Failure to pass a budget earlier this year began the debacle, but the cavalcade of missteps continued this week with the passage of a so-called Continuing Resolution (CR) to avoid an October 1 government shutdown.

Let’s start with the annual budget plan – or lack thereof. Facing one of the worst long-term debt and deficit crises in the past half century, Democrats in Congress decided to kick the can and skip developing a blueprint this year.

This is truly unconscionable. How can the Democrats – with large majorities in the House and the Senate – look voters in the eye and say, we have no plan – no long term schematic to ensure America won’t become another Greece. The only thing more unbelievable is that they apparently got away with it because no one seems to notice.

This dereliction of duty is unprecedented. Never in the history of the modern process – dating back more than a quarter of a century – have both the House and the Senate failed to pass a budget resolution.

Investors would dump shares of a business that projected massive amounts of future debt, but told shareholders, ‘Sorry, we don’t have a plan to deal with it.’ It’s one of the reasons political markets put a strong ‘sell’ signal on the Democratic majority.

The majority party’s ‘dog ate my homework’ approach means fiscal year 2011 spending bills languish; funding levels for all of next year’s programs is uncertain; and deficit projections rival faith healers in terms of their trustworthiness.

Because Congress failed to pass a budget or enact any appropriations bills this year, lawmakers will have to rely on a CR to avoid a government shutdown.

But even a CR, which some will pitch as a “freeze at last year’s spending levels,” is a fiscal charade – the second act in this year’s budget fiasco.

Freezing spending at current levels sounds good at first blush. But as theHeritageFoundation pointed out in an August report, non-defense discretionary spending already grew at 28 percent over the past two years. The Congressional Budget Office estimates that non-defense discretionary spending is now at 4.5 percent of GDP – the highest level in 25 years. A CR just “freezes” spending at these already higher levels.

Today’s politics demands a “melt,” not a freeze. In other words, a CR should not just continue the status quo, but also acknowledge the public’s demand for a least some kind of fiscal belt-tightening.

Yet even modest cuts in spending offend many congressional Democrats’ ideological predispositions. Keynes is still king in their minds, particularly liberals in safe districts, insulated from distractions of viable Republican challengers or pesky swing voters concerned about the size of government.

The third act of the fiasco concerns tax policy’s future. The media focuses on whether or not rates should snap back to their 2001 levels for everyone or only those for individuals earning over $200,000 or families making over $250,000.

Republicans say no one’s taxes should go up; Democrats want to increase rates on individual, family and small business income over $200,000 (individuals) or $250,000 (families). Why not schedule a vote to alleviate the uncertainty? Well, it’s Because the Republican position would likely prevail. Speaker Pelosi and Senate Leader Reid are using their unchallenged rules powers to sidestep a vote.

Democrats’ budget fiasco also caused an avalanche of other tax ambiguity. What are the taxes on inheritance (now zero because the old rates expired at the beginning of this year)? How about rates on capitals gains and dividends? Then there is the issue of the Alternative Minimum Tax and child tax credits.

This fiscal indecision has harmed businesses, individuals, and investors seeking certainty. No one knows what they will pay in future taxes – confusion that freezes needed capital investments and job creation decisions.

Democrats this year presided over a fiscal policy catastrophe. Their inability to craft a sensible budget plan, their failure to use the CR to signal spending restraint, and the sea of confusion they created over tax policy, provides voters with a host of reasons to pull the plug on a congressional majority already in critical condition.